Tony Oz : My definition of a good active trader (over 20 round trip trades a month) is someone who is profitable and has earnings to commission ratio greater than 5. But that's my definition. Why? Because I know of 2-Mil-a-year traders who blew out in their first down year because their ratio was less than one to one! ... There are only a few that achieve longevity in this business with one to one ratio. There are plenty who achieve it with ratios greater than 5. Hitman : This I can not agree with, at least based on what I have seen at my firm. I personally believe traders with a profit to commission ratio of 1 to 1 (what I did last year) is typically playing it safer than those going for 5 to 1 because you sacrifice a lot of commissions with churning which is part of the defense. It generally leans toward a more scalping oriented game, and in general, smaller up days and smaller down days. People who go for bigger moves (required for higher p/c ratio) need to have wider stops and tend to have bigger swings, and higher volatility in their account. Tony Oz : No No No. The one with the 5 to 1 is simply more selective than the one with one to one! That is what I was referring to... Here is another question for you? If you end up losing $10,000 this year before commissions and you generate the same commissions you did last year, will you survive? Think about it, your loss is only 1/15 of your previous year's gross profits, yet you would blow out. As part of my continuing effort to create a mind-set that is consistent with the underlying principles of a probabilistic environment (a la Douglas), I decided to entertain myself with the possible implications of the aforementioned interchange (taken from DaytraderDave's Trading Journal thread). Consider the 1:1 trader. Let p be the probability of a successful trade, which we shall assume remains constant. For simplicity's sake, we shall assume that a trade has only 2 outcomes, a gross profit of 25 cents per share or a gross loss of 25 cents per share. Assume also that R, the risk per trade, is a fixed proportion (say 0.5%) of E, our equity. Let N be the number of shares per trade (computed as R/0.25) and C be the commission rate per share including passthrus. For total commissions to equal total net profits, the following equation must hold true : R*(2*p-1) - 2*N*C = 2*N*C => R*(2*p-1) = 4*N*C => R*(2*p-1) = 16*R*C => p = (16*C+1)/2 So for example, if E=40000, R=200, N=800, C=0.01, we compute p=0.58. Note that p is independent of N. On the assumption our trader does 12 trades per day, I ran some Monte Carlo simulations for a trading year, the results of which can be seen in Table 1 of the attachment. We observe that as long as our trader maintains his edge and discipline, he is in no danger of blowing out his account. The main threat to a trader of this type is the extreme sensitivity of equity vis-a-vis p (probability of a successful trade). A "mere" drop from 0.58 to 0.54 changes him from a $86,000 per year trader to a breakeven or losing trader, while a change from 0.58 to 0.62 increases his annual profit more than fourfold ($355,000). Let's have a look at another trader - one who has a longer time horizon (intraday and swing), who puts on an average of, say, 2 trades per day, is looking for a gross profit or loss of 50 cents, risks 1% of his equity per trade and has a commission rate of 0.015 per share - perhaps the 5:1 trader referred to by Tony Oz. The results for varying p can be seen in Table 2 of the attachment. Notwithstanding the fact that we are comparing different trading styles and parameters, if we consider p as a form of skill level, then it can be seen that both traders have similar breakeven levels (0.53 vs. 0.54). Our 5:1 trader, however, needs higher skill levels to reach $86,400 (0.65 vs. 0.58) and $356,000 (0.77 vs. 0.62) than our 1:1 trader. Once both have reached comfortable earnings levels, it would seem that the 5:1 trader can better withstand a bad spell (small drop in p, due to internal or external factors, for an extended period) than the 1:1 trader, which may be why Tony Oz prefers the former's longevity. Disclaimers (1) No claim or assertion is intended regarding skill levels of different trading styles or personalities. (2) The simulations are crude, based on very simplistic modelling and the results should be used for entertainment purposes only. (3) The attachment was necessary as it is next to impossible aligning the figures in table form in the body of a post.